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Attachment 2 6. 3C Page 11 At this time, CalPERS is reviewing the possibility of administering OPES and providing trustee services to cities. The services provided would be the same as the services provided by CalPERS for the City's pension plan. However, the requirements for participation are unknown at this time, and the Cit}ls participation in a CalPERS administered OPES plan may require full funding of the ARC as is currently required under CalPERS pension participation. It is recommended that the City implement GASS 45 along with a plan for funding the ARC as bond rating agencies, while realizing that cities cannot immediately fund the OPES liability, will possibly look at the cities' plans for progressively funding OPES. Failure to develop a plan may adversely affect an issuer's credit rating. The City is currently in the middle of issuing a series of bonds to fund the Recycled Water Project, and a decline in the City's credit rating would increase the cost of borrowing. Additionally, failure to Implement GASe 46 would result in a qualified or adverse audit opinion. The required GASS 45 implementation date for the City is FY 2007/08. The City must make decisions for implementation including the following: . Funding level of ARC - zero to full funding . Funding source - budgeted annual departmental charges, one-time monies such as unanticipated increases in available fund balance . Trustee/Self Administer -If any part of OPES is funded above the current "pay-as- you-go" level, a determination must be made whether the City will self administer the plan and use an outside trustee for investment purposes, or utilize an outside administrator/trustee such as CaIPERS. The City may also review the current level of post employment benefits currently provided, and possibly look at implementing a tiered approach for new hires. Any changes in this benefit would impact the total cost of OPES and the resultant ARC. Recommendation Staff is recommending a phased in approach for increased funding of the ARC over four years until the ARC is fully funded in the fourth year of implementation (2010-11). Staff proposes the following schedule: Proposed Additional Additional Proposed Charge as a Net Current Balance Payroll Additional % of Total Unfunded ARC Pay-Go Remaining Charge% Charge $ Revenues ARC General Fund 2007-08 3,627,031 1.175,918 2.451,113 1.00% 363,100 0.49% 2,088,012 2008-09 3,706,826 1,411,102 2,295,724 2.00% 755.249 0.97% 1 ,540,475 2009-10 3,788,376 1.693.322 2,095.054 3.00% 1.178,188 1.46% 916.865 2010-11 3,875,509 2,031.987 1,843,522 4.50% 1,837,974 2.17% 51548 6